Teaching Basic Money Concepts to Children

As song writers Buddy DeSylva, Lew Brown, and Ray Henderson once said, the best things in life may be free—but most things cost money. Buying toys and candy, going to the movies, and renting video tapes all cost money. While our ancestors may have bartered for much of what they needed, trading a chicken for a doctor's house call or a basket of eggs for a bolt of calico, today we use hard cash.

Grown-ups know that the tiny dime is more valuable than the larger nickel and penny, but to children, this may be hard to understand. The very first step in learning about money and finance, therefore, is understanding what money is all about.

Money ABCs

Money is any medium of exchange that can be used to pay for goods and services and to measure the value of things. Currency is a term for a country's money in circulation—that is, coins and bills.

The two main skills that children need to know when it comes to money—and the earlier, the better—is being able to identify money and being able to tender money and make change. They probably won't learn these skills in school, either because the primary focus in most schools is math, not money. One expert suggested that kids can start to learn about money as soon as they're old enough to know not to put it in their mouth—you know your child better than anyone, so you know when you can start. Certainly, by the end of the first few grades in elementary school your child should have mastered counting money and making change. If your child is older or can already do these tasks, you can move on to using checks.

Identifying Money

Money comes in different shapes and sizes—it comes in metal and in paper. Different units of money have different values that can be used to pay for different things. Size doesn't count—it's the denomination of the money that matters. Adults take these simple facts for granted, yet they're precisely the things that prove problematic for children.

Financial Building Blocks

Coins in circulation today are the Lincoln penny, the Jefferson nickel, the FDR dime, the Washington quarter, and the Kennedy half-dollar. The Susan B. Anthony dollar coin is still in circulation; starting in 2000, the Sacajawea dollar coin will start to circulate.

Bills in circulation today include the $1, $2, $5, $10, $20, $50, and $100 bills. Distribution of bills in denominations of $500, $1,000, $5,000, and even $10,000 ceased back in 1969.

The important concept to convey to your child is that money is based on the dollar. Coins are merely fractions of that unit; bills are multiples of that unit. One hundred pennies, or one-cent coins, make up a dollar; Twenty nickels, or five-cent coins, make up a dollar; and so on.

Understanding that money is based on the dollar unit allows you to explain about equivalents: that 10 pennies will buy the same as one dime; that four quarters will buy the same as a dollar bill. Ask your child to think of how many combinations of coins might equal 25¢ (for example, three nickels and one dime). The answer: 14 combinations (which includes simply using one quarter). You can repeat this game with other amounts, such as 50¢ or a dollar.

Ever wonder what “E Pluribus Unum” means? Are your kids stumped by the mint marks on coins? You can find the answer to these and other questions on coins at the Department of the Treasury's Learning Vault (www.ustreas.gov/opc/opc033.html). Find answers to questions on paper currency at www.ustreas.gov/opc/opc0034.html.

Piggybank on It

No matter what your age, it's always important to count the change you're given. Doing this is the same as having made the change yourself (you have to check the change-maker's math). It's also a good practice to announce the amount of money you're tendering (for example, “here's $20") so that the change-maker won't short you on the change.

Making Change

The word change refers to the loose coins you have in your pocket. It also means the difference between what something costs and the money that's been tendered to pay for it. Every adult has had the experience of facing a teenage cashier who can't make change. Like teenagers who can't tell time because of digital watches, they can't make change because of today's cash registers that tell them what the change should be. In effect, these cashiers never learned the simple task of making change. If you don't want your child to be that teenager, it's up to you to make sure that the idea of making change doesn't become a lost art. Making change can be easily mastered once your child is familiar with the different coins and bills, and can count in multiples of these pieces of money.

As with tying shoes, there are different ways to accomplish the same thing. The easiest technique for making change is counting forward from the amount spent to the amount tendered. For example, if an item cost 68¢ and the amount tendered is three quarters, or 75¢, then count forward with coins from the 68¢ cost, as follows: 69, 70 (with a penny each), and 75 (with a nickel). In other words, the change should be 7¢ (two pennies and one nickel).

An alternative technique is the subtraction method. Here, subtract the cost of the item from the amount tendered. Repeating the earlier example, subtract 68¢ from 75¢, which is 7¢. Then count out the coins to equal 7¢ (two pennies and one nickel).

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